Federal Versus State Oversight and Its Impact on Customer Acquisition Planning

Since the 2018 Supreme Court Ruling that overturned the Professional and Amateur Sports Protection Act (PASPA), US states have been able to regulate sports betting through their own gambling authorities rather than have it regulated at the federal level.

Yet, with the inclusion of prediction markets, federal versus state oversight is once again thrust into the spotlight over claims on who has the right to manage them. More federal courts have been getting involved, handing out preliminary injunctions as they see fit.

The question is then, how long can it last until the issue is once again brought to the attention of the Supreme Court? Polymarket founder Shayne Coplan thinks a Supreme Court decision is imminent. But in the meantime, for operators, how can these ever-changing legal grounds affect customer acquisition planning?

Growing Federal Involvement

The growth of prediction markets, especially Kalshi and Polymarket, which closed November with a combined $8 billion in trading volume, has coincided with increased federal involvement as states try to stop the operation of sports event contracts.

Polymarket and Kalshi are regulated by the Commodity Futures Trading Commission (CFTC), meaning that they don’t adhere to state gambling laws. However, states have begun challenging this authority, arguing that sports contracts facilitate gambling and should therefore be regulated at the state level.

That means there has been constant back-and-forth between the two. In Tennessee, the state’s gambling operator recently sent a cease-and-desist order to prediction market platforms. In response, a federal judge temporarily halted the order, allowing Kalshi to continue operating in the state. Similar cases have been seen in Nevada, Maryland, and Michigan.

The rulings create legal uncertainty for consumers, especially regarding where prediction markets can operate.

State Enforcement in Regulatory Disputes

As state enforcement has ramped up, there have been a litany of incidents that shed light on the problems surrounding who gets to regulate what. In instances like Nevada, the federal courts sided with the Nevada Gaming Commission, with a judge finding that Kalshi was subject to the state’s gaming laws.

This decision then opens a whole new metaphorical bag of worms over the differing opinions of federal judges, with some siding with prediction markets and others with state regulators. Because of this uncertainty, operators are forced to constantly track these decisions in what can be argued as a volatile market.

Impact on Customer Acquisition Planning and Marketing Spend

The uncertainty surrounding the regulation of prediction markets can delay their launch by other operators. Along with a launch delay, it also poses a risk to affiliates and investors until clarity is reached on the legal situation in these markets.

The result of this ambiguity is that operators need to focus on more dynamic acquisition models that account for regulatory risks. Forecasting Customer Lifetime Value (LTV) will also need to be adjusted to account for changing regulatory conditions, including the likelihood of legal challenges and their outcomes.

Marketing Strategies to Combat Jurisdictional Risk

To combat growing jurisdictional risk, operators should consider building acquisition models that can be easily adapted to changing environments.

One example could be a scalable acquisition model that accounts for preliminary injunctions issued by federal courts. Another could be updated scenario planning, meaning that operators are better suited to deal with legal ramifications. Operators should also be open to their consumers about their regulatory status to maintain trust.

Conclusion

Federal involvement is changing the game in how operators used to manage under state regulation. Operators need to adopt jurisdictional risk into their acquisition planning now to keep up with an ever-changing legal environment.

Author: Shmulik Segal, Founder and CEO of Media Troopers